On 1 January 2019, IFRS 16 came into force, changing the recognition of assets used under leases and other contracts of similar nature. Under the new standard, lessees no longer have to distinguish between operating and finance leases, and rights to use assets and the resulting liabilities must be recognized in the balance sheet. The value of the right-of-use assets is subject to periodic depreciation, which, together with the financial expenses of the lease, affects the income statement.
Who IFRS 16 applies to
IFRS 16 applies to all companies that use assets such as automobiles, office and commercial space, IT equipment, machinery and equipment, etc. under leases, rental or similar agreements that meet the standard's criteria. The new standard will have a particularly strong impact on the retail industry.
An example of a tool supporting contract management in accordance with IFRS16 - webinar recording in Polish (Contact us for English versions)
New requirements resulting from the application of IFRS 16
- the need to collect and store more data about concluded contracts than before,
- storing the history of changes in contract parameters, affecting the calculation of values presented in the financial statements,
- calculation of the value of liabilities and assets to be recognized in the balance sheet according to the new formula,
- calculation of depreciation on the right to use assets,
- extended scope of information on lease agreements, required to be disclosed in the financial statements and notes.
Dedicated software for IFRS 16
In response to the above needs, we have created in Cogit an application which enables the implementation of the guidelines included in the new standard. The application supports the process of management and reconciliation of lease, rental and similar contracts for accounting purposes from the beginning of the contract to its end. The module for the management of lease contracts allows for their registration together with the parameters necessary for the calculation of the value of liabilities and right-of-use assets. Data concerning contracts may be entered manually by authorized users or imported automatically. This module also provides a possibility to modify the contracts during their term with the history of made changes.
The financial module of the application supports the calculation of the value of liabilities and right-of-use assets at the moment of contract registration and in subsequent periods in accordance with the guidelines included in IFRS 16. Depreciation of right-of-use asset and financial costs presented in the income statement are also calculated automatically. From the application it is possible to generate a file with values to be posted in a given period, ready for import to the accounting system, and a table with data required for a note to the financial statements.
Advantages of using a dedicated application
- Central register of all contracts meeting the IFRS 16 criteria in the organization.
- Consistent and compliant with the standard way of calculating accounting values for all agreements.
- Automation of calculations, automatic generation of a batch file for the accounting system and a table for notes to financial statements.
- Generation of balance and result values per partner company in case of lease, rental or similar agreements within a capital group, facilitating the financial consolidation process.
- Possibility of analyzing the impact of changes of contract parameters on the balance and result values - work on scenarios.
- Possibility of parallel work of many users.
- Ready reports on leased/ rented assets.
- Easy analysis of data concerning costs, liabilities, assets from many points of view thanks to storing data in multidimensional cubes.